Dual-Track Exit Strategy Highlighted in Neiman Marcus Deal

September 11, 2013

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Private equity firms are renowned for their long-term planning and impeccable attention to detail, but many investors have found that when it comes time to exit, it’s best to keep your options open. On September 9, Ares Management and Canada Pension Plan Investment Board (CPPIB) announced they had reached an agreement to acquire Neiman Marcus from Warburg Pincus and TPG through a secondary buyout valued around $6 billion. Earlier this summer, Neiman Marcus filed for an opaque $100 million IPO, but it was by no means clear that Warburg Pincus and TPG ever intended to follow that path to fruition. Shortly after Neiman Marcus filed its S-1, rumors abounded about a club deal with KKR and CVC to acquire Neiman and possibly roll it up with KKR’s other luxury retailer target, Saks. That potential faltered when Saks was acquired by Hudson's Bay in July, and since then talks between Warburg Pincus and TPG and Ares and CPPIB have been moving closer to a deal. It seems as though the IPO filing was, for the most part, simply a backup plan employed by the private equity firms in what is known as a dual-track strategy, which is intended to drive up the price that an acquirer would need to offer to close the deal.

The strategy of pursuing multiple exit options simultaneously is not new, but has been coming into vogue in recent years.